The NIEO as global Keynesianism


From left to right: India’s Jawaharlal Nehru, Ghana’s Kwame Nkrumah, Egypt’s Gamal Abdel Nasser, Indonesia’s Ahmed Sukarno, and Yugoslavia’s Josip Broz Tito. PHOTO/Voltaire

The countries promoting the NIEO were solidly anti-Marxist. Unlike Groucho Marx, they wanted to be a member of any club that might have them — specifically, the club of post-World War 2 developed, relatively sovereign nations using controlled domestic economies and particularly financial systems to promote faster industrialization and stable incomes for primary producers and workers more generally. 

In essence, by promoting a new deal for recently decolonized nations and the mostly Latin American countries operating as informal dependencies under first the British and then the US empire, the NIEO group sought to generate a global equivalent of the US New Deal. The New Deal famously legitimized collective bargaining, stabilized agricultural production and prices while also subsidizing incomes, and funded a massive developmental upgrading of the US American internal periphery. In essence, the NIEO proponents sought to expand that post-war ‘fordist’ regulated economy to a global scale, just as immigrant and racial minorities sought access to stable income and employment inside developed country labor markets. Those minorities wanted western democracies to live up to their promises of equality for all citizens; NIEO proponents wanted western democracies to live up to the unfulfilled promises of the 1944 Bretton Woods conference and post-colonial sovereign equality.  

This was not a forlorn hope for three reasons. First, the NIEO was at some level economically rational. Second, the Bretton Woods architects had considered and approved proposals like those of the NIEO already, though they were never implemented. Third, in the specific conjuncture of the early 1970s, rich countries’ internal political struggle over how to cope with the contradictions of the post-war regulated economies was still unsettled, opening room for a set of global compromises mirroring the earlier ones in rich countries. 

The rationality of the NIEO

The NIEO was economically rational for the same reasons the New Deal was economically rational. The continuous flow, assembly line-based mass production system that emerged in the US in the 1920s and 1930s required both stable demand and stable production to be profitable. Mass production systems were in principle extremely efficient and productive relative to craft production. But massive investment in specialized capital goods underwrote that productivity. And that massive investment could only be profitable if it ran more or less continuously at full capacity, so as to maximize economies of scale. The New Deal sought to create an institutional framework that would stabilize both demand and production.

Mass production required stability and predictability overall, as Aldous Huxley’s famous parody Brave New World emphasized. Continuous flow production can only work on the supply side if all required inputs arrive in the right quantities and quality, at the right time and the right place, to be assembled by workers with the right skills. One of the most important skills was tolerance for the extreme monotony and fast pace of assembly line work. Continuous flow production could only be profitable if that stable output more or less met stable purchasing power, and moreover purchasing power at a level that could accommodate the expense of what were in essence capital goods for households, like cars and refrigerators. 

The New Deal accomplished much of this at a domestic level. Unions for a largely white, male industrial labor force in the US American northeast and northern Midwest stabilized wages, while routinized collective bargaining assured that wages grew in line with increased productivity. Stable, higher wages and an expanding welfare state enabled those workers to buy cars and houses on credit. Cars and houses were the motors of post-war growth. But virtually every economic sector was the object of stabilizing regulation including, most importantly, financial flows. The Agricultural Adjustment Act stabilized farm output and income, which helped transform agriculture into a more predictable industrial enterprise closely linked to the vehicle and chemical industries — Ford designed the Model T as a multi-purpose farm vehicle. Federal legislation and the Texas Railroad Commission stabilized oil prices and quantities domestically, while the seven biggest US and British oil firms regulated global production. And regulations and plethora of special credit facilities channeled predictable capital to farmers, electrical power utilities, municipalities, defense contractors, and most significantly, the housing market. Finally, the US government brought electricity to the US periphery with three massive public hydropower projects: TVA in the southeast, the Columbia River projects in the northwest, and the Colorado river projects — primarily the Hoover Dam — in the southwest.

The approval of the Bretton Woods architects

The impending Allied victory in World War 2 opened a space for the United States to export some or all of this system to the rest of the world, given US productive superiority. (Russians won the war with blood; US Americans with sweat; Britons with tears for their empire). The 1944 Bretton Woods conference saw 44 free and occupied nations, including delegations from some colonies promised post-war independence, try to design a stable international economic order under the new United Nations. The US and Britain dominated the talks, but various would-be industrializers like Canada, Australia and India — the last still a British colony, the first two only semi-sovereign, but all crucial for Britain’s war effort — added a strong developmentalist element to the debates. 

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